Common Social Security Mistakes
Most retirees, or those with a disability that prevents them from earning a paycheck by working, depend on a Social Security payment each month. A recent survey by Nationwide Financial reported 49% don’t know how to maximize their benefits. Another 33% of adults said they didn’t know the age they were eligible for full retirement benefits or if they should take benefits early or delay benefits until later in life.
Many Americans don’t plan their approach to retirement and typically make common missteps that affect their benefits over time. However, if you make the effort to absorb the proper information ahead of time, you can avoid these Social Security oversights.
Here are the most frequent Social Security mistakes that are made:
- Claiming Benefits Too Early is by far the number one oversight that is made. 62 years of age is the earliest you can claim Social Security, to which many people decide that quicker access to these funds will help their current bank account. Unfortunately, taking these benefits at this time will permanently reduce the monthly reimbursement amount, which could be as much as 30%, if you do not wait until full retirement age (FRA). The FRA ranges between 66 and 67 depending on the year of birth, and waiting until 70 guarantees retirees the highest benefit total. However, according to the Social Security Administration’s Annual Statistical Supplement for 2024, some 63% of 50.1 million retired workers received reduced benefits because they claimed benefits before reaching their FRA. Couples should take the time to plan for their retirement strategy.
- Not Coordinating Benefits with your Spouse could potentially lessen the total benefits claimed if both spouses take benefits at the same time. So timing is key here. Being married gives you a slight advantage to have the spouse that earns the most wait as long as possible to claim full benefits to receive the maximum amount of Social Security earnings if possible. If you spouse passed away, survivor benefits allow the existing spouse to receive the higher of their own benefit or the deceased spouse’s full benefit.
- Fearing the Social Security Program Will Fall Short, which is the latest report from the Congressional Budget Office. This is for two reasons which include declining birth rates and a rising life expectancy. Yes, this could happen by 2033 if Congress does not help to prevent running out of funding. However, leadership can change how benefits are structured and how the program is paid for to solve such issues. Marcia Mantell, author of Cookin’ Up Your Retirement Plan, says the likelihood that the government would let that happen is incredibly small. She feels the matter hasn’t reached urgency yet – “In 1982, the reserve account went dry and only [then] did Congress bother to do anything. That’s the nature of the political machine.”
- Forgetting to Factor in Taxes is another oversight that many do not account for. Taxes are based on your adjusted gross income (AGI), non-taxable interest, and half of your Social Security benefits. Up to 50% benefits may be taxable if individuals earn over $25,000, or couples earn more than $32,000, while higher income levels of $34,000 and above for individuals and $44,000 for couples can be subject to an 85% tax on their benefits. Understanding how federal income tax can have an effect on your income from Social Security benefits can help you manage tax-efficient investments to possibly reduce the benefit sum subject to taxation.
- Neglecting to Review your Social Security Statement on a regular basis through SSA.gov means you could be missing out on important information on your estimated benefits and earning history. Create a created a My Social Security account, if you haven’t already to track your earnings. If you consistently check your statement, you can better track any missing or incorrect data that could lower your benefit allotment. Making these corrections before you retire will help you maintain your earnings to accrue the most out of your benefits.
- Missing the Medicare Registration when you are 65 or older. You can apply for Medicare as early as 3 months prior to turning 65, and as late as 3 months after turning 65. Individuals think the Social Security Administration (SSA) will notify you when your eligibility is near, but that is not the case. It is up to you to apply online at gov/medicare or call 1-800-772-1213. If you are receiving Social Security retirement or disability benefits before turning 65, you get enrolled in Medicare Part A automatically and have the opportunity to enroll in Part B in the month you turn 65 (or after 24 months of receiving disability benefits). 3 months before you turn 65, you will receive a Medicare Initial Enrollment Period package.
- Worrying About Being Subject to the Earnings Test, or those that continue to work after retirement age could face a heavy tax burden if they earn above a low income threshold. Therefore, older workers worry they will lose a portion of their income if they continue to work, so they quit. Boston University economist Laurence Kotlikoff talks about the “adjustment of reduction factor (ARF),” which restores those lost benefits once the claimant reaches full retirement age.
“Know that it’s a good thing to lose money to the earnings test because for every dollar you lose to the earnings test, you get about roughly $1.20 back in benefits,” Kotlikoff said. “But people aren’t being told that, so they mistakenly think that going back to work just makes no sense because all they’re doing is working for the government.”
- Overlooking the Impact of Other Social Security Benefits such as Medicaid or Supplemental Security Income (SSI). Claiming Social Security may affect your eligibility for other assistance programs, depending on if your income exceeds the maximum for those other programs. Read up on government and state programs to find out more about what other sources of assisted income you may be eligible for.
It’s important to be proactive about how to maximize Social Security benefits to understand how timing, earnings, taxes and eligibility impact your overall financial outcome. You can avoid these mistakes we outlined above by carefully planning ahead. Staying cognizant and reviewing your Social Security options regularly will help you think through decisions that align with your retirement goals and financial needs. Lowery Law Group is here to help with your Social Security disability questions. We’re committed to helping you through any complexities. We stand ready to help secure the benefits you need and deserve. Contact us at info@lowerylegal.com or call (843) 991-0733. There is no fee for a free consultation regarding your claim.